50p tax rate 'an expensive luxury'

The 50p income tax rate could cost UK households £30 a year in higher taxes by 2016, an economic think-tank has claimed.

The Labour government raised the top tax band from 40p to 50p in 2009.

But the Centre for Economics and Business Research (CEBR) said the "well-intentioned" move could cost the Treasury up to £1 billion as wealthy earners leave the UK - leaving less well-off taxpayers to plug the gap.

Chief executive Douglas McWilliams said: "Every household in the country could have to pay £30 more in tax for the luxury of keeping this tax. It starts to become a very expensive luxury."

He said the levy was currently pumping more cash into the Treasury, but the revenue would fall as businesses and high-earners move abroad. He believed ministers should cut the top band below 40% - even lower than the original rate - if they want to take more money in tax revenue.

A lower band would encourage entrepreneurs and make tax-avoidance schemes less attractive, he said.

Launching a CEBR report into the 50p rate in the City of London, Mr McWilliams claimed research "suggests the revenue-maximising top rate of income tax is likely to be less than 40%".

The Government has faced calls to axe the 50p rate, though opponents of slashing the tax believe such a move would be politically damaging.

TaxPayers' Alliance director Matthew Sinclair said later: "Higher and higher tax rates will put people off working, investing, building a business and paying tax in Britain. The rest of us will have to make up the difference."

He added: "With the economy in trouble and huge pressures on most families' budgets, it is madness to struggle along with this self-inflicted wound. The 50p rate should be scrapped."